That big hit record rocketing up the Billboard magazine
music charts may turn out to be a dud that's getting some
behind-the-scenes help.
Top record industry officials told The
Times they are aware of instances in which major labels have attempted to
manipulate sales figures.
These music executives say there is a
coterie of independent consultants and merchants from Los Angeles to New
York who have developed a system to distort sales numbers that are
reported to SoundScan, the research firm that was supposed to clean up the
once-shadowy world of music sales. There's nothing complicated about the
scheme: It involves retail clerks swiping a CD numerous times across a
scanning machine to falsely boost sales figures.
"What you have
here is an industry basically lying to itself," said George Zamora,
president of WEA Latina, the U.S. sector of AOL Time Warner Inc.'s Latin
music division. "It's a real problem. It's happened a number of times. In
Los Angeles. In New York. In Puerto Rico."
Billboard magazine chart
chief Geoff Mayfield said he also is aware of efforts to distort sales
figures. "I am very disappointed . . . to know that record companies may
be attempting these kinds of shenanigans."
SoundScan Chief
Executive Mike Shalett acknowledged that the company has found troubling
anomalies in record sales data. And Shalett said he is hearing reports
among industry insiders that the major record labels are hiring outside
consultants to manipulate the numbers.
Representatives of the five
major record companies all denied knowledge of any label in their
organizations participating in any schemes to enhance sales
figures.
It is unclear how often manipulation occurs or how many
record companies participate in efforts to distort sales
figures.
Shalett declined to name which labels or retailers may
have participated in schemes to falsely drive new releases up the charts
featured in Billboard magazine.
But Shalett said, "We've seen
anomalies in the sales figures. We have security measures in place,
though. We catch them. . . . Let me put it like this: Some stores that
used to report to SoundScan no longer do."
Shalett refused to say
how many stores have been eliminated from the company's tracking
system.
SoundScan is the record industry equivalent of the Nielsen
ratings for television programs.
Placement on the Billboard record
charts affects the amount of play a song receives on the radio, orders
from retail outlets and the reputations of artists and label executives.
And the fraudulent maneuvers affect the quality of data that companies pay
millions of dollars to obtain.
Several executives familiar with the
process say it works like this:
A label hires an independent
consultant to ship boxes of free CDs of a new release to a select group of
small, independent record stores across the U.S. The retailers, in return
for the free merchandise, agree to swipe each CD numerous times over
bar-code scanning devices at cash registers to make it appear as if more
copies of the album are sold. The trumped-up sales figures are then fed
into SoundScan's computerized accounting system.
"Some stores are
scanning a single CD numerous times to falsely distort the sales numbers,"
said Sony Discos Chairman Oscar Llord. "It's got to stop."
Through
these techniques, a record can be pushed up as many as 10 positions on the
charts, which could be enough to get a CD into the coveted top
10.
Although there are no laws that specifically prohibit the
manipulation of sales data, the practice could have broad ramifications
for the music business. SoundScan is widely regarded as the most
trustworthy gauge of consumer tastes, helping determine which acts should
get radio airplay and which CDs retailers ought to stock. Record
companies, artist managers and radio stations pay handsomely--$10 million
annually--for the data because it is believed to be precise and
tamper-proof.
"If ever there was an industry that needed accurate
sales information, it's us," said Jheryl Busby, former head of urban music
at DreamWorks. "One thing we can't afford to do is waste money hyping
stuff that's not real."
The marketing scheme is a throwback to an
era before SoundScan existed. Before the research firm's arrival 10 years
ago, the hype-driven industry's charts were based entirely on verbal
reports made by retailers, which executives say were easily corrupted with
gifts and money from record labels.
SoundScan introduced a
computerized system to register sales. The company tracks sales in 18,000
music stores, extrapolates the data using weighted samples and delivers a
final tally to subscribers every Wednesday morning.
SoundScan's
computer system revolutionized the business by rearranging the pecking
order of pop music, allowing virtually unknown acts to elbow out
established superstars in the weekly sales race. The data revealed, for
the first time, that consumers were spending most of their money on
non-mainstream music such as hip-hop, metal, alternative rock and
country--genres that immediately began to dominate the charts. And because
tweaking the system appeared to be an extremely complicated and expensive
proposition, SoundScan seemed invulnerable.
But with so much riding
on the perception of first-week sales, nervous executives eventually
started exploring new ways to mask the failure of costly over-hyped
projects, executives say. Because labels sometimes invest more than $2
million to produce a CD, video and corresponding promotional campaign, the
importance of a blockbuster SoundScan showing is considered
essential.
Indeed, pop stars blame label executives if their new
release fails to crack the top 10. Radio programmers and concert bookers
take notice when a CD bombs, as does the chief financial officer of the
label's parent corporation. One failed project can undermine a label's
quarterly financial projections.
"The big reason why label
executives distort sales data is because they want to try to look good for
the corporate bosses upstairs," WEA Latina's Zamora said. "It's
ludicrous."
The major record labels acknowledge employing
independent marketing firms, but said the consultants were required to
sign contracts stating they did nothing illegal while operating on behalf
of the companies. Labels said they hire outside marketing consultants on a
per-project basis primarily to deliver CDs, posters and displays to
independent stores that their distribution arms would not otherwise
service.
But several retailers say labels often employ outside
consultants simply to target a specific group of small, independent stores
that are weighted heavily in the SoundScan formula. It is unclear how they
discovered which stores are weighted. The consultants target small stores
because they are more easily lured into the scheme and have less to lose
than the larger chains owned by publicly held companies, record executives
say.
Because SoundScan monitors transactions at only 650 of the
thousands of independent music stores, those stores are weighted to count
more in its weekly tally.
"I feel strongly about the security
measures we have in place," Shalett said. "I'm not willing to discuss them
with you for the obvious reasons, but they work very well. We catch the
anomalies."
Stores participating in the scheme earn about three
times their normal profit by selling the free CDs at the suggested retail
price, according to people familiar with the practice. Marketing
consultants can earn $12,000 a month.
Artists and songwriters,
however, don't earn a penny on the transactions. Nor do the public
corporations that own labels caught up in the marketing ploy. In fact,
they lose money. By giving away so many free goods, corporations forfeit
tens of thousands of dollars in potential sales.
Shalett said he is
losing patience with those perpetrating the latest scheme.
"The
labels pay us to run a system that delivers an accurate sales count,"
Shalett said. "What's the point of them paying somebody else to mess with
it? It's insane."